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The dark labyrinths of super

Melissa Peters |  17 October 2013  | 

ComplexThe lack of transparency in super fund management is evident with the way industry funds use other managers. The AFR looks at "mandate switching", where big super managers switch their use of outside providers to manage the investments. Industry funds will increasingly look to manage in house. It underlines how little superannuants really know about what is going on withe their money. It is very much a case of 'trust me':

"Welcome to the mysterious world of mandate switching. It is full of secret squirrel business. The managers who have been sacked do not want to discuss why they lost out and the super funds who dump them won’t reveal the true reasons for changing managers.

"The super funds say their decisions to shift money from manager to manager is closely guarded intellectual property. But lurking behind these changes at the country’s biggest super fund are some pressing corporate governance questions relating to possible conflicts of interest and investment management risks.

"Sitting behind the mandate changes is an entire industry of undercover transition managers. They will switch a super fund’s money from one manager to another at minimal cost and without alerting the hedge funds and algorithms that could profit from the process."


At least $50 billion a year is switched around in this way. The AFR notes that the industry funds get the big free kick:

"The single biggest winner overall was Industry Funds Management (IFM), the funds management business owned by a handful of industry super funds. The AustralianSuper annual report says that IFM now handles about 31 per cent of AustralianSuper’s $85 billion in funds under management. On first impression that suggests there is a significant concentration risk confronting members of the fund. It certainly raises a number of questions.

"What if IFM gets into trouble? What ­happens if it makes the wrong calls? Would AustralianSuper’s ownership’s of IFM influence the decision making of the investment committee? Could IFM ever be sacked as a fund manager? A spokeswoman for AustralianSuper says there are several notable points about the investments held under the IFM umbrella.

"About 70 per cent of the assets are in low-risk strategies, which refers to the Australian Equities Index or cash. Also, the assets are spread across a range of asset classes including equities, cash, infrastructure and private equity. Each of the investments is in a separate mandate, which is in the name of AustralianSuper. The spokeswoman says the fund is “confident that any potential risk is small and well managed.”

Again, we see how little transparency there is.